HE 


IRLF 


SB    3fi    flfl? 


GIFT   OF 


TRANSPORTATION 

ADDRESS   BY 

HON.  CHARLES  A.  PROU  r 


MEMBER   INTE 


DELIVERED   IN  THE   P 

1909,  BEFORE  THE  SE 

SHEFFIELD   SCIE 


(Reprinted  from  "I 


Copyright,  1910,  by 
YALE   UNIVERSITY   PRESS 

NEW  HAVEN,   CONN. 


TRANSPORTATION 

ADDRESS   BY 

HON.  CHARLES  A.  PROUTY 


MEMBER   INTERSTATE   COMMERCE 
COMMISSION 


DELIVERED  IN  THE  PAGE  LECTURE  SERIES 

1909,  BEFORE  THE  SENIOR  CLASS  OF  THE 

SHEFFIELD  SCIENTIFIC  SCHOOL 

YALE  UNIVERSITY 


(Reprinted  from  "E very-day  Ethics") 


Copyright,  1910,  by 
YALE   UNIVERSITY   PRESS 

NEW  HAVEN,  CONN. 


TRANSPORTATION 

CHARLES   A.    PROUTY 

I  AM  asked  to  speak  for  an  hour  upon  the  Ethics 
of  Transportation.  Since  the  only  transportation 
of  which  I  have  any  special  knowledge  is  by  rail- 
road, I  shall  confine  myself  to  that. 

The  steam  locomotive  was  first  developed  and 
steam  railroads  were  first  built  hi  England.  The 
original  idea  was  to  provide  a  way  upon  which  the 
public  might  operate  its  own  carriages.  The  rail- 
road was  to  be  like  the  turnpike  or  the  canal,  and 
just  as  any  individual  may  haul  his  barges  along 
the  canal  or  drive  his  wagons  over  the  turnpike 
upon  the  payment  of  an  established  toll,  so  members 
of  the  public  were  to  be  allowed  to  operate  their 
engines  and  cars  upon  the  railroad,  paying  to  the 
owners  due  compensation  therefor. 

It  early  became  apparent,  however,  that  this  was 
not  feasible.  From  the  very  nature  of  the  service 
it  is  necessary  that  the  operation  of  a  railroad  shall 
be  exclusive,  and  from  this  it  has  come  to  pass  that 
the  same  company  is  usually  the  owner  and  opera- 
tor. My  subject  therefore  reduces  itself  to  this, 
The  Ethics  of  Building  and  Operating  a  Railroad. 

At  the  threshold  of  every  discussion  of  this  kind, 
differentiating  this  business  from  most  other  kinds 


271806 


TRANSPORTATION 

of  business,  lies  the  fact  that  the  railroad  is  a  public 
servant.  The  government  gives  to  the  railway 
company  the  right  to  appropriate  your  land  against 
your  will.  This  is  because  the  public  requires  the 
service  which  the  railroad  is  to  perform,  and  hence 
your  interest  and  desire  must  give  way  to  the  com- 
mon necessity.  A  railroad  is  a  monopoly.  You 
must  use  it  for  the  purpose  of  travel  and  of  trans- 
portation, and  you  must  pay  whatever  sum  is 
required  for  that  service.  The  public  may,  in  self- 
defense,  protect  itself  against  this  monopoly  of 
universal  use.  Just  as  the  highway  is  a  necessity 
to  the  public,  so  the  railroad,  under  modern  commer- 
cial and  industrial  conditions,  is  equally  a  necessity. 
Many  countries  build  and  operate  their  own  rail- 
roads. The  United  States  might  do  so,  but  has 
elected  to  delegate  that  duty  to  private  individuals. 

Whatever  the  reason,  of  the  fact  there  can  be  no 
doubt.  The  Supreme  Court  of  the  United  States 
long  ago  decided,  and  has  often  reaffirmed  the 
doctrine,  that  the  building  and  operating  of  a  rail- 
road is  a  public  function,  and  that  the  railroad 
when  built,  even  by  private  capital,  is  an  agent 
of  the  government  in  discharging  its  duty  to  pro- 
vide this  public  way. 

At  the  same  time  the  property  employed  in  this 
business  is  private.  Next  to  agriculture  the  amount 
invested  in  railroads  exceeds  that  in  any  other  kind 
of  business.  The  last  statistical  report  of  the  Inter- 
state Commerce  Commission  shows  the  capitaliza- 


TRANSPORTATION 

tion  of  our  railroads  to  be  over  sixteen  billions  of 
dollars.  Some  donations  have  been  made  from  time 
to  time  by  individuals  and  municipalities.  The 
national  government  has  contributed  very  con- 
considerable  sums  mainly  in  the  way  of  land  grants; 
but  still  practically  all  of  this  enormous  amount 
has  come  from  private  sources  and  has  been  in- 
vested in  the  hope  of  earning  a  return  from  the 
prosecution  of  the  business. 

This  dual  relation,  the  fact  that  the  service  is 
public  while  the  capital  is  private,  makes  the  so- 
called  railroad  problem  difficult  and  even  perilous. 

In  England  the  public  character  of  the  railway 
has  been  recognized  from  the  first.  As  early  as 
1850  the  act  permitting  the  organization  of  railroad 
corporations  provided  that  they  should  treat  with- 
out discrimination  all  members  of  the  public.  In 
the  United  States  it  has  been  otherwise.  The  coun- 
try was  new  and  in  process  of  development.  Rail- 
roads were  an  absolute  necessity.  Attempts  by 
the  states  to  build  and  operate  railroads  had  proved 
disastrous.  Hence,  if  the  railroad  was  actually  built 
and  operated,  there  was  little  inquiry  at  first  as  to 
the  method  or  even  as  to  the  charge  made  for  the 
service. 

Olcott  v.  The  Supervisors,  16  Wallace  678,  in 
which  the  Supreme  Court  of  the  United  States 
laid  down  the  doctrine  that  the  railroad  was  the 
agent  of  the  government  in  the  performance  of 
this  public  service,  was  decided  in  1873.  In  1876 


TRANSPORTATION 

came  the  Granger  Cases,  affirming  the  right  of  the 
state  to  establish  the  charges  which  a  railroad 
might  exact  for  its  transportation  services.  Never- 
theless, this  idea  continued  to  be  economic  and  legal 
rather  than  practical.  Until  comparatively  recent 
times  our  railroads  have  been  not  servants,  but 
masters.  Only  when  the  abuses  became  so  glaring 
and  their  effects  so  important  that  they  could  no 
longer  be  overlooked,  did  the  public  give  practical 
effect  to  this  principle.  To-day  both  the  several 
states  and  the  United  States  do  in  fact  exercise  a 
considerable  measure  of  control  over  the  charges 
and  operations  of  railroads. 

This  public  character  of  the  railroad  must  be 
thoroughly  apprehended.  There  can  be  no  com- 
prehension of  the  right  and  wrong  of  these  matters 
otherwise.  The  railroad  magnate,  potent  as  he  is, 
must  acknowledge  in  the  government  of  the  United 
States  a  master.  The  railroad  employee,  while  his 
first  allegiance  is  to  the  company  which  pays  him, 
should  also  understand  that  he  owes  a  certain  duty 
to  the  public.  Even  more  important  is  it  that  the 
people  themselves  should  realize  that  these  railways 
are  their  servants;  that  as  such  they  should  not  be 
impeded  and  oppressed,  but  fostered  and  assisted. 

Keeping,  then,  always  in  mind  the  character  of 
the  service,  let  us  consider  the  building  and  equip- 
ping of  the  railroad,  including  the  getting  of  the 
money  therefor. 

It  is  probably  true  that  at  no  time  in  the  world's 


TRANSPORTATION 

history  has  the  mere  possession  of  great  wealth 
given  to  its  possessor  the  relative  distinction  which 
it  does  to-day.  Isaac  of  York  was  an  individual 
of  great  consequence  in  his  generation;  but  he 
moved  in  a  different  sphere  and  was  accorded  a 
different  sort  of  consideration  from  that  which  his 
lineal  descendants  in  Wall  Street  to-day  receive. 
If  one  had  undertaken  50  years  ago  to  name  our 
famous  men  he  would  have  designated  the  orator, 
the  statesman,  the  author,  the  man  of  science; 
seldom  the  man  of  riches.  To-day  our  millionaires 
are  the  notable  and  influential  members  of  society. 
It  is  their  movements  in  which  the  people  take 
interest  and  which  the  newspapers  record. 

And  for  this  there  is  a  very  substantial  reason. 
The  wealthy  men  of  to-day  have,  as  a  rule,  acquired 
their  riches  by  various  kinds  of  industrial  and  com- 
mercial activity.  They  have  built  railroads,  con- 
structed factories,  opened  mines,  given  employment 
to  thousands.  They  have  been  the  active  factors 
in  the  wonderful  material  development  of  this 
nation  in  recent  years.  We  are  to-day  the  foremost 
power  in  the  world  because  we  are  the  richest  and 
greatest  wealth-producing  country  in  the  world. 
It  is  natural  that  the  masses  should  deify  those 
men  whose  operations  have  made  us  great. 

There  is  inborn  in  most  men  a  desire  for  fame 
and  power.  It  is  altogether  natural  that  a  young 
man  standing  as  you  do  upon  the  threshold  of  life 
should  inquire  in  what  sphere  of  action  he  can 


TRANSPORTATION 

exercise  the  most  potent  influence,  and  that,  so 
inquiring,  his  attention  should  be  turned  to  those 
occupations  in  which  great  wealth  has  been  accu- 
mulated. 

In  no  other  business  have  so  many  great  fortunes 
been  amassed  as  in  the  railroad  world.  In  no  other 
sphere  have  these  enormous  accumulations  come 
into  existence  almost  by  magic  as  here.  Those 
who  have  made  the  beginnings  in  other  fields  have 
multiplied  their  possessions  by  their  operations  in 
railroads  and  railroad  securities,  and  by  all  this  the 
young  man  is  attracted  to  this  sphere  of  activity. 

Now,  I  would  not  by  any  word  of  mine  discourage 
young  men  from  embarking  in  railroad  service. 
There  is  probably  no  better  field.  It  is  the  most 
important  of  all  commercial  industries.  The  charac- 
ter of  the  service  is  such  that  a  high  grade  of  ability 
is  required,  for  which  a  high  compensation  is  paid. 
The  calling  is  a  most  honorable  one.  The  very  fact 
that  it  is  quasi-public  in  its  character;  that  more 
than  any  other  business  it  immediately  concerns 
the  lives  and  the  property  of  the  whole  community, 
renders  it  an  occupation  of  the  highest  grade.  But 
the  young  man  should  thoroughly  understand  that 
the  conditions  of  yesterday  are  not  the  conditions 
of  to-day  and  will  be  still  less  those  of  to-morrow. 
He  should  not  enter  that  service  with  the  idea  of 
duplicating  the  experiences  of  the  past,  if  he  is  to 
square  his  conduct  with  any  proper  notion  of  right 
and  wrong. 


TRANSPORTATION 

The  railroad  is  a  public  servant.  Its  only  income 
is  derived  from  the  charges  which  it  imposes  for 
the  performance  of  its  public  duty,  and  those 
charges  should  be  reasonable.  If  a  railroad  prop- 
erty pays  an  extravagant  return,  it  is  usually  be- 
cause its  rates  are  unreasonably  high.  No  young 
man,  certainly,  should  embark  in  that  occupation 
with  the  expectation  of  imposing  upon  the  public 
unlawful  and  unjust  charges  and  of  accumulating 
by  that  means  for  himself  or  his  stockholders  great 
profits.  He  may  properly  expect  a  handsome  com- 
pensation for  his  own  services  and  a  sure  return 
upon  the  investment  which  he  makes;  he  has  not 
the  same  right  to  obtain  here  as  in  private  business 
extravagant  returns. 

Still  more  to  the  point  is  this  thought:  Long 
ago  when  I  was  just  entering  upon  the  practice  of 
my  profession  up  in  Vermont,  I  inquired  of  a  legal 
friend  whether  his  brother  lawyer  who  had  grown 
rich  in  the  profession  had  made  his  money  by  his 
practice.  My  friend  replied,  "By  his  'practices.'" 
The  great  fortunes  which  have  been  accumulated 
by  our  railroad  magnates  have  generally  come,  not 
as  the  product  of  railroad  building,  but  from  the 
various  practices  which  have  been  rife  in  the  past. 
There  has  been  the  construction  company,  watered 
stock,  consolidation,  reorganization,  the  manipula- 
tion of  the  stock  market,  and  so  on.  It  is  by  such 
means  that  these  enormous  fortunes  have  been 
accumulated. 


TRANSPORTATION 

Consider  those  English  captains  of  the  sea  who 
roved  the  main  in  the  days  of  good  Queen  Bess. 
Sturdy  men  they  were.  They  turned  a  stream  of 
gold  into  the  coffers  of  England;  they  made  the  name 
of  English  seamen  respected  in  all  quarters  of  the 
world;  their  own  names  are  embalmed  in  history  as 
the  potent  men  of  that  generation.  Were  these 
same  gentlemen  conducting  these  same  operations 
to-day  they  would  be  promptly  hung  as  pirates. 

So  with  our  modern  captains  of  industry.  They 
have  been  energetic  men;  their  work  has  been  of 
great  benefit  to  our  country.  It  may  be  that  in  no 
other  way,  for  instance,  could  our  railroads  have 
been  built;  but  none  the  less  many  of  them  have 
been  pirates  upon  the  sea  of  finance,  and  the  methods 
which  they  have  practised  will  not  be  tolerated 
in  time  to  come. 

These  changed  conditions  must  be  fully  appre- 
ciated by  the  young  man  who  embarks  in  railroad 
service  of  any  character.  Our  railroads  have,  for 
the  most  part,  been  built.  The  work  of  the  future 
lies  in  the  enlarging  and  perfecting  of  our  present 
systems.  For  that  a  different  kind  of  ability  is 
required.  The  railroad  magnate  of  the  half  century 
to  come  should  be  more  a  railroad  operator,  less  a 
stock  manipulator.  Bearing  in  mind  these  changed 
conditions,  let  me  indicate  some  of  the  rules  which 
in  my  opinion  should  determine  the  right  and  wrong 
of  building  and  financing  a  railroad. 

1.   No  railroad  should  be  built  which  is  not  neces- 


TRANSPORTATION 

sary.  In  the  past  railways  have  been  constructed 
for  various  purposes  besides  that  of  operating  at 
a  profit.  They  have  sometimes  been  built  for  the 
profit  to  some  construction  company  from  the  build- 
ing. They  have  sometimes  been  built  for  the  sole 
purpose  of  invading  the  territory  of  a  rival,  and 
thereby  forcing  down  the  value  of  the  property  of 
that  competitor,  so  as  to  compel  either  a  consolida- 
tion, a  lease,  or  a  sale  upon  terms  unduly  advanta- 
geous. In  my  opinion  all  operations  of  this  sort 
are  morally  wrong. 

We  are  not  considering  the  ethics  of  competition. 
If  an  individual  sees  fit  with  his  private  capital  to 
construct  a  factory  which  can  be  of  no  benefit  to 
him  except  in  so  far  as  it  works  injury  to  his  rival, 
that  may  be  his  moral  right.  Certainly,  that  pos- 
sibility was  an  incident  in  view  of  which  the  invest- 
ment was  made,  and,  as  a  rule,  only  the  private 
capital  invested  is  interested. 

With  a  railroad  this  is  entirely  different.  Here 
is  a  public  institution.  The  property  invested  in 
that  enterprise  is  entitled  to  a  fair  return,  and  this 
return  is  derived  from  the  charges  which  the  public 
must  pay.  Generally,  that  particular  road  alone 
serves  a  given  community  and  if  the  service  be 
inadequate  the  whole  community  must  suffer.  It 
is  a  fundamental  proposition  that  whatever  tends 
to  enhance  the  actual  cost  of  performing  this  trans- 
portation service  is  detrimental  to  the  public  which 
is  served. 


TRANSPORTATION 

Let  us  assume  a  railroad  serving  a  certain  terri- 
tory. The  business  of  that  territory  is  sufficient  so 
that  this  railway  can  be  operated  in  an  efficient 
manner  at  reasonable  rates  and  with  a  suitable 
return  to  its  owners.  A  second  railroad  is  con- 
structed parallel  with  the  first.  The  advent  of 
this  second  carrier  does  not  increase  the  total  busi- 
ness to  be  done;  it  simply  divides  that  business 
between  two  competitors.  Those  expenses  of  opera- 
tion, which  may  be  termed  the  fixed  expenses  of  a 
railroad,  the  maintenance  of  its  way,  payment  of 
a  certain  part  of  its  employees,  have  been  increased 
twofold.  Broadly  stated,  twice  the  capital  is  now 
invested  in  serving  this  territory  which  is  actually 
needed. 

One  of  three  things  must  result.  Either  the  ser- 
vice will  degenerate,  or  the  charges  will  be  increased, 
or  the  owners  of  these  properties  will  receive  an 
inadequate  return;  generally  all  three  of  these  things 
happen  in  a  degree. 

In  private  business  competition  with  all  its  harsh 
features  seems  necessary.  In  no  other  way  can 
the  public  be  protected  against  the  imposition  of 
unreasonable  prices;  but  with  the  railroad  the  gov- 
ernment itself  can  fix  the  charge  for  its  service, 
which  is  the  price  of  this  commodity,  and  can  pre- 
scribe the  character  of  the  service,  which  is  the 
quality  of  the  commodity. 

In  the  popular  apprehension  the  more  railroads 
the  better.  Such  is  not  the  fact.  Every  unneces- 


TRANSPORTATION 

sary  mile  of  railroad  is  a  damage  to  the  public. 
Sound  thinkers  have  long  since  recognized  the 
truth  of  this  principle,  and  even  the  popular  mind 
is  beginning  to  grasp  it.  In  one  state  at  least  no 
railroad  can  be  constructed  until  public  authority 
after  intelligent  investigation  has  determined  that 
the  public  necessity  requires  it.  The  time  will 
come  when  positive  law  will  generally  so  provide; 
but  meanwhile,  without  the  inhibition  of  the  statute, 
the  promoter  of  a  railroad  should  recognize  and 
apply  this  truth,  and  wilful  failure  to  do  so  is,  in  my 
judgment,  a  breach  of  good  faith. 

2.  Every  railroad  should  be  honestly  built.  By 
this  I  mean  that  the  railroad  when  completed 
should  not  stand  the  company  which  owns  it  at 
more  than  the  actual  cost  of  its  economical  con- 
struction. 

This  would  seem  to  be  axiomatic,  and  is  only 
referred  to  because  of  the  very  extensive  prevalence 
of  the  contrary  practice.  Numbers  of  railroads 
have  been  built  for  the  sole  purpose  of  enriching 
a  construction  company.  Even  when  the  work 
is  done  by  the  railroad  corporation  itself  there  is 
too  often  graft  in  every  direction:  commissions  to 
purchasing  agents,  purchases  from  concerns  owned 
by  railroad  officials,  numbers  of  devices  all  of  which 
go  to  swell  the  cost  of  the  property  beyond  what  it 
should  be. 

Similar  practices  are  prevalent  in  all  kinds  of 
private  business;  but  find  their  fullest  expression 


TRANSPORTATION 

in  railway  operations.  The  capital  of  a  railroad 
corporation  is  usually  larger,  the  stockholders  are 
more  numerous,  there  is  not  the  same  sense  of  direct 
responsibility  upon  the  part  of  the  official,  and  his 
act  is  not  subject  to  the  same  scrutiny  as  in  case 
of  a  strictly  private  enterprise. 

I  believe  that  we  are  working  steadily  to  a  higher 
plane  in  this  respect;  but  even  to-day  there  is 
altogether  too  much  of  this  character.  These 
things  will  cease  when  the  public  not  only  regards 
them  as  wrong,  but  treats  as  wrong-doers  those  who 
have  grown  rich  by  these  means.  When  you  brand 
a  man  as  a  malefactor  in  high  place  in  the  morning, 
invite  him  to  luncheon  at  noon,  and  call  him  into 
counsel  upon  the  state  of  the  nation  in  the  evening, 
the  moral  effect  of  the  whole  performance  is  weak- 
ened. With  respect  to  all  these  operations  to  which 
I  refer,  when  men  are  not  only  termed  malefactors 
but  treated  as  malefactors,  the  thing  will  stop. 

3.  The  capital  account  of  a  railroad  corporation 
should  represent  the  amount  of  money  actually 
invested.  No  dollar  of  stock  or  of  bonds  should 
be  issued  which  does  not  stand  for  a  dollar  paid 
into  the  property.  I  do  not  mean  that  a  bond  may 
not  be  sold  for  less  than  its  par  value;  for  that  may 
be  unavoidable;  but  so  far  as  possible  the  character 
of  the  security  should  be  such  and  the  rate  of 
interest  such  that  the  bond  will  be  handled  sub- 
stantially at  par.  The  object  should  be  to  make  the 
capital  account  of  a  railroad  represent  the  money 


TRANSPORTATION 

which  has  been  actually  paid  into  that  concern  by 
outside  individuals.  All  those  devices  by  which  rail- 
road stocks  and  bonds  are  issued  without  a  present 
money  consideration  are  wrong. 

This  subject  is  too  broad  a  one  for  discussion  here; 
but  I  may  say  in  a  word  that  the  reasons  which 
support  this  proposition  are  of  two  classes.  The  first 
concerns  the  investing  public.  The  capitalization  of 
a  corporation  does  not  of  course  affect  the  value 
of  the  property  of  that  corporation.  The  market 
price  of  the  stock  usually  recognizes  the  difference 
between  the  real  value  and  the  capitalization.  If 
the  value  were  accurately  known  so  that  buyers 
and  sellers  of  these  securities  might  understand  the 
relation  between  that  value  and  the  amount  of  the 
outstanding  stock,  there  would  be  no  objection  from 
the  standpoint  of  the  investor  to  overcapitalization. 

In  fact,  the  value  of  a  railroad  is  not  known;  the 
cost  of  constructing  it  is  not  known;  even  the  earn- 
ing power  of  the  property  is  an  uncertain  quantity 
and  has  been,  in  the  past,  subject  to  much  manipu- 
lation. 

Nothing  has  contributed  more  to  the  improper 
and  iniquitous  operations  upon  the  stock  market 
than  the  ability  to  issue,  ad  libitum  and  without 
present  money  consideration,  railroad  stocks  and 
securities.  Nothing  would  do  more  to  lend  cer- 
tainty to  the  value  of  railroad  stocks,  to  take  them 
out  of  the  domain  of  the  speculative  security  and 
make  them  an  investment  security,  which  they 


TRANSPORTATION 

properly  are,  than  the  inability  to  so  manipulate 
them. 

The  second  reason  arises  out  of  the  public  charac- 
ter of  the  corporation.  We  have  already  seen  that 
the  private  property  invested  in  the  performance 
of  this  public  duty  is  entitled  to  a  fair  return  upon 
its  fair  value. 

It  is  often  said  by  railroad  representatives  that 
rates  cannot  be  fixed  according  to  the  amount  of 
capital  stock  of  a  railroad;  and  this  is  true.  The 
rates  of  a  particular  railway  are  often  determined 
by  conditions  which  that  railway  does  not  control; 
but,  upon  the  other  hand,  railway  rates  as  a  whole 
should  be  largely  based  upon  the  fair  value  of  the 
property  used.  When,  as  to-day,  there  is  a  general 
assertion  upon  the  part  of  railroads  as  a  whole  that 
their  rates  must  be  advanced  in  order  to  yield  a 
suitable  income  upon  the  investment,  it  becomes 
material  to  know  what  is  the  fair  value  of  this 
property.  The  amount  of  money  actually  and  hon- 
estly put  into  the  enterprise  does  not  of  necessity  fix 
its  value;  but  the  highest  judicial  authority  has 
declared  that  this  is  one  of  the  important  elements 
which  should  be  taken  into  account.  The  one  thing 
in  this  complex  problem  which  can  be  known  with 
absolute  accuracy  from  now  on  is  the  amount  which 
is  actually  invested  in  the  enterprise;  and  that  thing 
should  be  known. 

It  is  urged  that  in  fixing  railway  rates  the  inno- 
cent holder  of  these  watered  stocks  must  be  con- 


TRANSPORTATION 

sidered;  and  the  Interstate  Commerce  Commission 
has  so  decided.  He  has  bought  in  good  faith, 
without  notice  that  his  stock  represents  no  actual 
consideration,  and  it  would  be  an  act  of  injustice 
to  take  from  him  the  value  which  he  has  honestly 
purchased.  If  a  railroad  stock  sells  upon  the 
market  for  $500  a  share,  that  is  in  a  measure  notice 
to  the  purchaser  that  the  charges  of  that  corpora- 
tion are  excessive.  They  may  not  be.  The  rail- 
road may  be  so  situated  that  upon  reasonable  rates 
it  can  make  earnings  which  justify  this  value;  but, 
in  a  way,  the  man  who  pays  that  price  does  so 
with  notice.  The  transaction  is  entirely  different 
when  he  buys  without  knowledge  a  share  of  stock 
four  parts  of  which  are  water  and  pays  $100  for  it. 
In  time  the  origin  of  these  railroad  stocks  is  for- 
gotten and  the  stock  itself  is  dealt  with  as  it  stands. 
I  have  been  engaged  for  a  dozen  years  in  con- 
sidering how  railway  rates  can  be  fixed  so  as  to  do 
justice  between  the  public  and  the  railroad.  If  I 
were  to  name  to-day  that  thing  which  in  my  opinion 
would  be  of  the  most  consequence  in  time  to  come 
I  should  say  absolute  control  over  the  capital 
account  of  this  public  servant.  When  no  security 
can  be  issued  by  a  railway  company  without  govern- 
ment sanction;  when  all  new  stocks  and  bonds 
must  be  sold  at  the  market  price;  when  every 
dollar  received  from  the  sale  of  securities  or  from 
the  operation  of  the  property  must  be  used  in  operat- 
ing or  improving  the  railroad  itself,  there  has  been 


TRANSPORTATION 

laid  the  foundation  for  a  structure  in  time  to 
come  which  will  afford  one  reliable  indication  of 
the  rate  which  the  railway  should  be  allowed  to 
charge. 

Mr.  Harriman  says,  "You  may  regulate  my 
charges  if  necessary;  but  you  should  let  alone  my 
financial  operations. "  The  most  conclusive  answer 
to  this  proposition  is  the  history  of  some  of  the  finan- 
cial operations  of  Mr.  Harriman  as  exhibited  in 
testimony  taken  before  the  Interstate  Commerce 
Commission. 

We  come  now  to  the  operation,  and  I  need  not 
say  here,  as  I  did  in  reference  to  the  building,  that 
the  strictest  honesty  and  economy  should  charac- 
terize every  transaction.  In  the  past  the  railroad 
has  been  the  fair  mark  for  any  kind  of  plunder. 
People  who  would  not  be  guilty  of  the  slightest 
dishonesty  in  their  dealings  with  private  individuals 
will  cheat  a  railroad;  and  this  same  notion  is  more 
or  less  prevalent  among  the  officials  and  employees 
of  the  railroad  itself. 

That  all  this  is  radically  dishonest;  that  the  same 
rule  should  obtain  in  the  treatment  of  this  public 
service  corporation  which  obtains  in  dealings  be- 
tween private  individuals,  needs  no  confirmation, 
and  without  spending  time  in  commenting  upon  it 
I  bring  to  your  attention  two  matters  in  connec- 
tion with  the  operation  of  the  railroad. 

It  is,  in  the  first  place,  the  duty  of  a  railroad 
manager  to  operate  his  railroad  for  transportation 


TRANSPORTATION 

purposes  and  to  use  his  railroad  funds  and  his  rail- 
road employees  for  no  other  purpose. 

Owing  to  the  public  character  of  the  service, 
railways  are  particularly  interested  in  the  acts  of 
the  government.  The  legislature  may  determine 
the  appliances  which  the  railroad  shall  use.  It 
may  fix  the  hours  of  service  of  its  employees.  It 
determines  the  kind  and  the  amount  of  taxes  which 
shall  be  imposed.  It  may  even  establish  the  rates 
which  the  railroad  can  charge.  Plainly,  therefore, 
it  is  of  great  importance  that  the  railroad  shall  be 
able  to  control  the  action  of  the  legislature. 

For  this  it  has  efficient  means.  Its  money  re- 
sources are  large.  Its  employees  are  numerous. 
In  the  past  it  has  been  able  to  afford  free  transpor- 
tation, a  most  potent  means  of  political  influence, 
and  by  concessions  in  its  rates  to  confer  the  most 
important  advantages. 

This  combination  of  inducement  and  means  has 
led  the  railroad  to  take  an  active  interest  in  politics. 
It  has  enacted  statutes,  appointed  judges,  elected 
governors,  and  even  presidents. 

This  political  activity  is  justified  by  the  railroad 
manager  upon  the  theory  that  in  no  other  way  can 
his  property  be  protected  against  unjust  assaults. 
The  private  individual  may  undoubtedly  contribute 
to  legitimate  political  campaign  expenses.  It  is 
possible  that  a  private  corporation  whose  property 
is  private  in  its  use  and  whose  will  is  that  of  the 
majority  of  its  stockholders  may  properly  contribute 


TRANSPORTATION 

in  like  manner.  It  may  conceive  that  its  pecuniary 
interest  is  so  far  involved  in  the  success  of  a  political 
party  or  a  political  idea  that  it  is  justified  in  using 
its  funds  to  assist  the  party  or  promote  the  measure. 
This  is  a  matter  the  ethics  of  which  I  am  not  now 
discussing.  The  court  of  final  resort  in  New  York 
has  held  that  it  is  not  a  criminal  act  for  the  officers 
of  an  insurance  company  to  pay  out  of  the  funds 
of  that  company  a  contribution  to  one  of  the  national 
political  parties. 

However  that  may  be  with  a  private  corporation, 
a  railroad  company  has  no  right  to  use  its  funds 
for  such  purposes.  That  corporation  by  reason  of 
its  public  nature  stands  in  a  way  as  a  trustee  for 
the  whole  people.  The  funds  themselves  come  from 
the  people.  The  function  of  this  public  servant 
is  transportation,  not  government. 

Some  time  ago  in  the  course  of  testimony  taken 
before  the  Interstate  Commerce  Commission  under 
resolution  of  Congress,  in  reference  to  the  proceed- 
ings of  the  Standard  Oil  Company,  it  turned  out 
that  that  corporation,  among  other  practices,  was 
accustomed  to  buy  space  in  newspapers,  for  which 
it  paid  at  advertising  rates  and  which  it  was  allowed 
to  fill  with  news  matter.  Sometimes  this  paid 
matter  found  its  way  into  the  editorial  columns. 
To  my  mind,  among  all  the  devious  practices  upon 
the  part  of  that  so-called  trust  which  were  revealed 
in  that  investigation,  none  was  more  dangerous 
than  this.  To  permit  a  concern  like  that  to  fill 


TRANSPORTATION 

the  columns  of  the  public  press  with  statements  of 
fact  and  statements  of  opinion  supposed  to  be  from 
disinterested  sources  is  to  poison  the  very  fountains 
themselves. 

A  railroad  may  properly  state  its  case  to  the  pub- 
lic, and,  under  many  circumstances,  should  use  its 
funds  for  that  purpose;  but  let  it  be  in  the  open 
over  its  own  signature. 

In  the  second  place,  the  railroad  manager  should 
operate  his  property  for  the  convenience  of  the 
public  and  with  uniform  consideration  of  the  public. 

We  come  back  always  to  the  same  proposition: 
the  railway  is  a  public  servant,  and  while  it  is  en- 
titled to  just  earnings  upon  the  capital  employed, 
the  manner  of  those  earnings  must  be  regulated  in 
view  of  the  public  interest.  The  establishment  of 
its  regulations,  the  arrangement  of  its  schedules, 
the  operation  of  its  trains,  should  all  be  in  this  view. 

A  railroad  is  a  monopoly.  The  passenger  must 
use  its  train,  must  pay  for  the  time  being  the  fare 
required,  and  must  submit  to  the  regulation  im- 
posed. He  has  no  direct  voice  in  determining  any 
of  these  things.  This  circumstance  leads  him  to 
view  with  suspicion  and  dissatisfaction  the  acts  of 
the  railway,  and  furnishes  the  strongest  possible 
reason  why  the  greatest  care  should  be  exercised  in 
the  first  instance  in  establishing  the  rule  and  the 
rate,  and  why  any  criticism  should  be  carefully 
considered. 

The  politic  railway  manager  will  satisfy  many 


TRANSPORTATION 

unreasonable  demands.  He  will  remember  that  the 
public  is  ignorant  and  must  be  instructed;  that  it 
is  unreasonable  and  must  be  patiently  borne  with. 
The  railroad  employee  should  observe  uniform 
courtesy  toward  the  public.  Courtesy  pays  in 
private  business,  and  is  insisted  upon  by  the  private 
employer;  in  this  public  service  it  is  a  duty.  This 
should  be  the  rule  among  all  railroad  employees 
from  the  highest  to  the  lowest.  The  millionaire 
traveling  in  his  private  car  is  entitled  to  no  greater 
consideration  than  the  poor  woman  with  her  bundles 
and  her  babies. 

In  the  last  dozen  years  my  duties  have  taken  me 
over  all  the  great  railway  systems  of  this  country 
and  into  every  state  and  territory  many  tunes.  I 
have  been  interested  to  observe  the  attitude  of  the 
railway  employee  to  the  public,  and  of  the  public 
to  the  railroad.  While  I  have  usually  been  able 
to  commend  the  treatment  accorded  to  the  public, 
I  have  observed  many  striking  examples  to  the 
contrary. 

You  may  think  that  all  this  goes  to  the  amenities 
rather  than  to  the  ethics  of  transportation;  that 
matters  of  this  sort  are  too  trivial  to  occupy  atten- 
tion in  this  place.  Not  so.  It  can  never  be  of 
little  consequence  in  any  walk  of  life  to  fail  in  that 
thing  which  good  conduct  and  good  conscience 
require.  But  here  this  relation  of  the  railway  to 
the  public  is  a  matter  of  paramount  consequence. 

The   passenger  upon  the  train  may  be  for  the 


TRANSPORTATION 

moment  entirely  subject  to  the  dictation  of  the  rail- 
way; but  there  comes  a  time  when,  standing  at  the 
polls  or  in  the  jury  box,  he  is  the  master.  I  am 
convinced  that  nothing  is  more  responsible  for  what 
injustice  has  been  done  railroads  by  juries  and  by 
legislatures  than  this  public-be-damned  attitude  of 
too  many  railroad  managers  and  railroad  employees. 

Not  long  ago  the  president  of  one  of  our  great 
systems  said  to  me  that  in  his  judgment  railroads 
would  be  compelled  to  look  for  the  protection  of 
their  properties  to  the  constitution  and  the  courts; 
that  the  people,  if  they  were  free  to  exercise  then- 
will,  would  virtually  confiscate  our  railroads.  Did 
this  gentleman  forget  that  courts  and  constitutions 
as  well  as  legislatures  are  in  this  land  of  ours  crea- 
tures of  the  people?  The  constitution  was  made  and 
can  be  unmade.  Courts  may  stand  between  the  rail- 
road and  any  temporary  invasion  of  its  right.  They 
cannot  defeat  a  settled  purpose  upon  the  part  of  the 
voters  of  this  country. 

There  are  times  when  the  railway  must  appeal 
to  the  court  for  protection  against  the  acts  of  the 
legislature  and  the  commission.  When  that  tune 
comes  the  appeal  should  be  made  and  the  court 
should  fearlessly  discharge  its  duty  in  dealing  with 
that  appeal.  But,  as  a  matter  of  policy  if  not  of 
ethics,  this  course  should  be  taken  only  as  a  last 
resort.  When  a  court  of  the  United  States  sets 
aside  a  statute  enacted  by  the  supreme  authority 
of  a  state,  some  temporary  benefit  may  accrue  to 


TRANSPORTATION 

the  railway;  but  there  remains  a  bitter  taste  in 
the  mouth  of  the  voter  and  a  rankling  in  his  heart 
which  sooner  or  later  are  likely  to  find  expression 
in  ways  against  which  no  court  can  grant  protection. 

Railroads  have  protected  themselves  in  times  gone 
by  by  controlling  courts  and  legislatures.  One 
method  of  protection  has  seldom,  if  ever,  been  tried, 
and  that  is  an  honest  appeal  to  the  voters  them- 
selves. Some  railways  are  beginning  to  resort  to 
this  expedient.  I  have  in  mind  one  railroad  presi- 
dent operating  extensively  in  a  section  of  the  country 
where  legislation  has  been  thought  to  be  the  most  hos- 
tile, who  loses  no  opportunity  to  lay  before  the  com- 
munities which  he  serves  the  necessities  of  his  road. 
I  can  but  believe  that  this  method  if  persisted  in 
will  win;  and  that  no  other  method  finally  can. 

Now  in  cultivating  a  proper  spirit  upon  the  part 
of  the  people  toward  the  railway,  nothing  can  be 
more  important  than  the  uniform  consideration  of 
the  public  in  these  relatively  minor  matters.  If  I 
were  a  railroad  president  I  would  insist,  first  of 
all,  upon  unvarying  courtsey  upon  the  part  of  my 
subordinates  from  the  highest  to  the  lowest;  for  no 
other  failure  of  duty  would  I  more  severely  dis- 
cipline an  employee.  I  would  see  that  every  com- 
plaint was  promptly  and  effectively  dealt  with. 

We  come  finally  to  the  charges  which  may  be 
imposed  by  the  railroad  for  the  service  rendered 
to  the  public.  Are  there  any  ethical  limitations 
upon  these  charges? 


TRANSPORTATION 

Its  rates  are  a  most  vital  thing  to  the  railway. 
It  is  for  the  sole  purpose  of  charging  these  rates  that 
the  railroad  is  built  and  operated.  Whatever 
affects  the  amount  of  these  charges  touches  in  its 
tenderest  point  the  welfare  of  the  railroad  corpora- 
tion. From  the  standpoint  of  the  railway  itself 
this  matter  is  of  supreme  consequence. 

Of  equal  consequence  is  it  to  the  public.  Except 
what  a  man  digs  in  his  own  garden,  almost  every 
article  which  he  puts  into  his  mouth  or  upon  his 
back,  which  enters  into  the  necessity  or  the  comfort 
of  his  daily  life,  has  been  the  subject  of  transporta- 
tion by  rail  and  has  contributed  its  part  of  the  rail- 
way charge. 

These  charges  have  sometimes  been  termed  a 
transportation  tax,  and  while  the  expression  is  not 
strictly  accurate,  the  analogy  is  close.  They  are 
in  essence  a  tax  paid  by  every  other  species  of 
property  to  that  kind  of  property  which  is  invested 
in  the  rendering  of  the  transportation  service.  If 
too  high,  these  charges  are  a  most  insidious  means 
for  taking  unjustly  from  the  masses  and  transferring 
to  the  few.  One  cent  per  ton  upon  the  tons  of 
freight  handled  for  the  year  ending  June  30,  1907, 
would  amount  to  almost  $18,000,000. 

Equally  important  is  the  relation  in  rates.  The 
railroad  rate  determines  who  shall  do  business  and 
where  it  shall  be  done;  where  coal  shall  be  mined; 
where  flour  shall  be  ground;  where  cities  shall  be 
built.  Had  I  the  time  it  would  be  profitable  and 


TRANSPORTATION 

perhaps  more  entertaining  than  my  present  subject 
if  I  were  to  show  you  by  actual  illustration  and  in 
greater  detail  the  truth  of  these  statements.  I 
must,  however,  ask  you  to  accept  my  statement 
that  in  the  rate  is  centered  the  interest,  in  the  main, 
both  of  the  public  and  of  the  railway. 

Every  one  who  has  given  even  superficial  con- 
sideration to  the  matter  of  railway  charges  knows 
that  they  present  themselves  in  two  aspects.  There 
is,  first,  the  inquiry  whether  the  rates  are  too  high 
for  the  service  rendered,  without  reference  to  the 
charges  made  for  other  similar  services;  and  there 
is,  in  the  second  place,  the  question  whether  the 
relation  between  the  charges  imposed  for  the  per- 
formance of  similar  services  with  respect  to  different 
individuals  or  different  commodities  is  just.  We 
will  consider  first  what  may  be  termed  the  absolute 
rate;  finally,  the  relative  rate. 

Those  of  you  familiar  with  the  De  Officiis  of 
Cicero  will  recollect  that  he  suggests  several  in- 
stances in  which  the  owner  of  property  ought  not 
to  exact  for  its  sale  the  highest  price  obtainable. 
Whatever  may  be  your  opinion  of  the  cases  pro- 
pounded by  this  philosopher,  certainly  the  general 
rule  is  quite  otherwise.  The  private  individual 
may  ask  for  his  property  or  his  services  whatever 
he  lists.  They  belong  to  him  and  he  may  keep  them 
or  he  may  dispose  of  them,  and  to  whomsoever  and 
for  whatever  he  sees  fit. 

Not  so  with  the  railroad,  which  must  serve  all 


TRANSPORTATION 

persons  alike,  whether  it  wills  or  not;  and  which 
must  make  for  those  services  a  reasonable  charge. 
Plainly,  therefore,  it  is  opposed  to  good  conscience  to 
exact  a  rate  which  is  unreasonable  or  discriminatory. 

While  this  statement  is  unexceptionable  in  the 
abstract,  it  is  extremely  difficult  of  application  in 
the  concrete  for  the  reason  that  it  is  most  difficult 
to  determine  what  is  an  unjust  and  an  unreasonable 
railway  rate.  The  government  sometimes  fixes  the 
charge,  and  thus  in  that  instance  determines  the 
matter;  but  formerly  in  all  cases,  and  to-day  with 
respect  to  the  bulk  of  railroad  transportation,  the 
carrier  is  free  to  fix,  in  the  first  instance  at  least, 
its  own  rates.  By  what  standard  can  the  justice 
of  those  rates  be  measured? 

If  a  railroad  was  constructed  for  the  purpose  of 
transporting  a  single  commodity  between  two  given 
points  and  was  engaged  in  no  other  service,  an 
answer  to  this  question  would  be  comparatively 
easy.  It  would  be  possible  to  determine  the  cost 
of  the  plant  and  the  expense  of  the  operation  and 
in  that  way  to  arrive  with  reasonable  satisfaction 
at  a  just  rate.  In  actual  practice  this  is  in  no  wise 
the  case.  Railroads  generally  engage  in  the  trans- 
portation of  both  passengers  and  property,  and  the 
property  in  particular  is  offered  in  every  variety 
of  form  and  under  all  conditions.  It  is  sometimes 
heavy  and  other  tunes  light;  sometimes  of  great 
and  at  other  times  of  little  value.  In  some  in- 
stances the  cost  of  transportation  is  of  little  conse- 


TRANSPORTATION 

quence  in  comparison  with  the  value  of  the  article, 
while  in  other  cases  the  price  of  carriage  may  abso- 
lutely control  all  dealings  in  the  commodity.  The 
problem,  therefore,  of  figuring  out  a  reasonable 
rate  becomes  a  well-nigh  impossible  one.  Even 
were  it  possible  to  determine  what  the  total  receipts 
of  a  railway  company  ought  to  be,  it  would  be 
impossible  to  distribute  that  amount  among  the 
various  commodities  actually  handled. 

Some  years  ago,  in  examining  the  traffic  official 
of  one  of  the  great  railroad  systems  of  this  country, 
I  asked  him  to  state  the  basis  upon  which  the  rates 
of  his  company  were  fixed.  After  mentioning  one 
measure  of  reasonableness  after  another  and  finding 
that  none  of  them  would  stand  the  test  of  an  actual 
application  to  his  various  rates,  he  finally  said,  in 
despair:  "To  be  perfectly  honest,  we  get  all  we  can, 
and  even  that  is  too  little. " 

I  think  this  gentleman  pretty  accurately  stated, 
in  this  sentence,  the  manner  in  which  the  railroad 
rates  of  this  country  have  been  made  in  recent 
years.  They  are  as  high  as  they  could  be,  and  most 
railroad  operators  have  honestly  felt  that  even  so 
they  were  too  low.  It  was  because  the  competitive 
conditions  which  had  fixed  rates  in  years  gone  by 
were  fast  disappearing  under  the  influence  of  com- 
bination, that  the  country  was  aroused  to  the  neces- 
sity of  taking  measures  to  protect  itself  against  an 
unjust  increase  when  these  competitive  conditions 
had  disappeared. 


TRANSPORTATION 

The  thoughtful  traffic  manager  who  gave  honest 
expression  to  his  belief  would  probably  state  that 
the  rule  of  most  universal  application  which  governs 
him  in  the  making  of  his  rates  is  that  expressed  by 
the  phrase,  "what  the  traffic  will  bear."  So  long  as 
business  moves  freely  his  rates  are  just.  When  the 
movement  stops  he  begins  to  examine  the  propriety 
of  his  charges.  This  is  the  only  ethical  obligation 
which  he  acknowledges. 

"What  the  traffic  will  bear"  is  an  obnoxious 
phrase.  There  is  about  it  an  odor  of  extortion.  For 
one  who  can  charge  anything  he  pleases,  to  take  all 
he  can  get  strikes  the  ordinary  mind  as  outrageous, 
I  am  not  certain,  however,  but  that  the  rule  as  prop- 
erly applied  and  understood  is  a  valuable  one,  and 
that  the  traffic  official  may  apply  it  without  justly 
subjecting  himself  to  the  charge  of  wrong-doing. 
Let  me  illustrate  just  what  the  meaning  of  this 
phrase  is  in  its  general  application. 

I  am  the  manager  of  a  railroad  extending  250 
miles,  from  A  to  B.  At  C,  a  distance  of  50  miles 
from  A,  is  located  a  coal  mine,  at  which  the  cost 
of  placing  the  coal  upon  the  cars  is  one  dollar  per 
ton.  Coal  of  that  grade  sells  in  the  open  market 
at  A  for  $2.25  per  ton.  I  establish  a  rate  of  one 
dollar  per  ton  for  the  handling  of  that  coal  for  a 
distance  of  50  miles. 

This  is  certainly  a  liberal  rate;  but  the  earnings 
of  my  road  as  a  whole  are  not  excessive;  nor  can 
the  rate  itself,  five  cents  per  100  pounds,  be  regarded 


TRANSPORTATION 

as  extortionate.  The  owner  of  the  mine  is  per- 
fectly satisfied,  for  he  is  making  a  magnificent 
profit  upon  the  operation  of  his  property.  A  is  a 
prosperous  community  buying  its  coal  cheaper 
than  most  communities. 

I  resign  as  manager  of  this  road  and  become  the 
manager  of  another  road  extending  in  the  opposite 
direction  from  A,  250  miles  to  X.  The  two  roads 
are  in  all  respects  identical,  the  cost  of  construction, 
capitalization,  business  —  everything  is  substantially 
the  same. 

At  X  is  located  a  coal  mine  precisely  similar  to 
that  at  C.  The  cost  of  producing  coal  upon  the 
cars  is  one  dollar  per  ton,  and  the  coal  will  sell  in 
the  market  at  A  for  $2.25  per  ton.  I  establish  a 
rate  for  the  haul  of  250  miles  of  $1.15  per  ton. 

Now,  have  I  in  these  two  cases  been  guilty  of 
any  wrong?  In  the  first  instance  everybody  is  satis- 
fied; everybody  is  prosperous.  In  the  second  case, 
the  mine  at  X  is  not  as  prosperous  as  the  one  at 
C,  for  the  profit  of  the  miner  at  C  is  two  and  one- 
half  times  as  great;  but  still  the  miner  at  X  operates 
to  advantage  upon  a  profit  of  ten  cents  per  ton.  The 
return  to  my  railroad  is  not  satisfactory  under  the 
rate  of  $1.15;  but  that  figure  is  better  than  nothing 
at  all.  In  other  words,  the  traffic  will  bear  one  dol- 
lar in  one  case  and  $1.15  in  the  other;  therefore,  I 
impose  one  dollar  in  the  first  case  and  $1.15  in  the 
second  case.  Nor  does  it  seem  to  me  that  the 
traffic  manager  can  be  accused  either  of  inconsist- 


TRANSPORTATION 

ency  or  of  moral  dereliction  who  establishes  rates 
as  suggested  in  this  illustration. 

The  case  which  I  have  put  is  an  extreme  one; 
but  it  illustrates  the  principles  under  which  the  rail- 
road tariffs  of  this  country  have  been  developed. 
The  study  of  the  traffic  manager  has  been  to  get 
business,  and  he  has  made  such  rates  as  were  neces- 
sary to  secure  that  business.  The  rates  actually 
made  in  pursuance  of  this  idea  have  been  often  in- 
consistent and  have  provoked  severe  criticism.  It 
does  not  seem  to  me  that  the  application  of  the  prin- 
ciple is  of  necessity  wrong.  Upon  the  contrary,  its 
application,  within  reasonable  bounds,  is  healthy 
both  for  the  railway  and  for  the  community. 

I  have  said  that  the  capitalization  of  a  railway 
ought  to  represent  the  money  actually  invested. 
Ordinarily,  the  dividends  paid  upon  the  capital 
stock  ought  not  to  be  extravagant.  Mr.  Hill  said 
in  giving  testimony  before  the  Commission  that 
seven  per  cent  was  enough.  I  think  he  is  right. 
Only  in  extreme  cases  would  a  larger  dividend  be 
justified. 

So  long  as  there  is  no  overcapitalization,  and  so 
long  as  the  rate  of  dividend  is  a  reasonable  one,  I 
do  not  feel  that  there  can  be  much  danger  of  the 
rate  being  inherently  too  high  under  conditions  as 
they  actually  exist  and  have  existed  in  most  parts 
of  this  country.  If  the  earnings  of  the  railroad 
are  actually  invested  in  the  improvement  of  the 
property  no  great  injustice  has  transpired.  What- 


TRANSPORTATION 

ever  has  been  taken  from  the  public  is  still  subject 
to  the  public  control,  and  while  a  scale  of  rates 
which  permits  of  the  betterment  of  the  property  out 
of  the  earnings  may  impose  upon  the  present  gen- 
eration a  tax  somewhat  higher  than  is  strictly  just, 
still  so  long  as  we  pay  it  without  inconvenience  no 
great  harm  is  being  done.  Instances  might  of 
course  be  imagined  where  rates  have  been  so  ex- 
tortionate as  to  justify  censure  of  the  person  who 
imposed  them;  few  cases  of  that  kind  have  fallen 
under  my  observation;  and  I  imagine  them  to  be 
extremely  rare. 

There  are  many  uncertainties  in  the  manage- 
ment of  a  railway.  The  volume  of  business  and 
the  expense  of  operation  vary.  The  demands  of 
the  public  for  improvements  which  do  not  produce 
increased  business  are  ever  growing.  The  evolu- 
tion of  new  railroad  methods  renders  useless  the 
old.  So  long  as  the  charges  are  paid  without  incon- 
venience by  the  public;  so  long  as  the  traffic  moves, 
there  is  not  much  danger  that  rates  will  become  per- 
manently too  high,  provided  we  can  control  the 
capital  account  and  know,  therefore,  the  return  which 
is  actually  paid  in  cash  upon  the  cash  investment. 

With  the  relative  rate  this  is  entirely  different. 
Let  me  illustrate  my  meaning  by  an  example  here, 
taking  for  that  purpose  the  railroad  A  B  and  assum- 
ing that  two  mines  are  located  at  C.  From  mine 
No.  1  coal  can  be  put  upon  the  cars  for  one  dollar 
per  ton,  and  it  sells  in  A  at  $2.25  per  ton.  From 


TRANSPORTATION 

mine  No.  2  the  cost  of  producing  coal  is  $1.25  upon 
the  cars,  and  the  quality  of  the  coal  being  poorer 
it  sells  in  the  market  for  but  two  dollars  per  ton. 

What  may  the  railroad  do  under  these  circum- 
stances? May  it  impose  the  rate  of  one  dollar 
upon  the  coal  from  mine  No.  1  and  a  rate  of  fifty 
cents  upon  the  coal  from  mine  No.  2,  thereby 
equalizing  the  profits  of  the  two  mines? 

I  think  not.  The  cost  of  transporting  that  coal 
is  the  same;  the  service  which  the  company  renders 
to  these  two  individuals  is  the  same.  The  value 
of  that  service  may  be  somewhat  less  to  the  miner 
whose  coal  is  worth  but  two  dollars  than  to  the  miner 
whose  coal  is  worth  $2.25,  and  possibly  this  differ- 
ence in  value  may  properly  find  expression  in  some 
slight  difference  in  the  rate;  but  certainly  the  rail- 
way has  no  right  to  take  up  in  its  tariffs  this 
difference  in  operating  cost  of  the  mine  and  quality 
of  the  coal. 

To  admit  of  any  such  right  upon  the  part  of  the 
railway  would  be  to  concede  that  railways,  by  the 
establishment  of  their  rates,  may  equalize,  enhance, 
or  utterly  destroy  all  natural  advantages.  If  the 
railroad  can  by  its  rate  make  the  coal  of  mine 
No.  2  equal  to  the  coal  of  mine  No.  1  in  the  ground, 
then  there  is  no  such  thing  as  a  natural  value. 
Everything  depends  upon  the  whim  of  a  particular 
railway;  or,  if  the  rates  are  to  be  revised,  upon  the 
whim  of  the  body  which  finally  decides. 

In  my  opinion  the  traffic  official  has  little,  if  any, 


TRANSPORTATION 

latitude  in  case  of  the  relative  rate.  It  is  his  abso- 
lute duty  to  treat  all  shippers  alike.  Voluntary 
discrimination  of  any  sort  between  his  patrons  is 
wrong.  A  railroad  has  a  very  wide  latitude  with 
the  absolute  rate  in  the  development  of  its  business; 
it  has  no  such  license  with  the  relative  rate. 

I  am  aware  that  the  contrary  has  been  often 
affirmed  in  actual  practice.  I  know  that  there  are 
numbers  of  rates  now  in  effect  which  utterly  violate 
this  rule,  which  could  not  with  propriety  be  dis- 
turbed. It  would  be  easy  to  suggest  conditions 
and  absurdities  which  might  arise  in  the  application 
of  such  a  rule,  and  still  I  myself  believe  that  there 
is  no  more  essential  principle  in  the  administration 
of  our  railroads  than  this.  So  far  as  can  be  absolute 
equality  must  be  done  between  competing  individ- 
uals and  competing  commodities  and  localities. 

I  should  fall  short  of  my  duty  in  presenting  this 
subject  if  I  did  not  spend  a  moment  in  suggesting 
to  you  what  may  be  termed  the  obverse  side  of  this 
question.  None  of  you  may  be  either  railway 
magnates  or  railway  employees;  you  will  all  be 
citizens  of  the  United  States  and  charged,  as  such, 
with  the  responsibility  of  dealing  with  this  problem. 

I  have  endeavored  to  impress  upon  you  that  the 
railway  is  a  public  servant,  and  that,  as  a  public 
servant,  it  owes  certain  duties  to  its  master;  I  would 
impress  it  upon  you  with  equal  force  that  the  public 
as  master  owes  certain  duties  to  its  servant. 

It  has  already  been  observed  that  the  railway  is 


TRANSPORTATION 

apt  to  be  considered  a  fair  mark  for  plunder;  and  the 
same  idea  finds  unconscious  expression  in  the  atti- 
tude of  the  public  toward  the  railroad  in  many 
matters  of  governmental  regulation.  The  people 
of  this  country  as  a  whole  have  no  desire  to  oppress 
its  railways  or  to  do  injustice  to  that  species  of 
property.  In  the  past  the  railroad  has  been  the 
aggressor;  it  has  by  its  own  conduct  compelled  the 
public  to  assert  itself;  but  there  is  to-day  the  very 
gravest  apprehension  that  the  pendulum  may  swing 
too  far  the  other  way. 

The  money  investment  in  our  railroads  has  been 
put  there  for  the  purpose  of  earning  a  return.  Just 
as  there  is  upon  the  part  of  the  railway  itself  an 
implied  promise  to  the  people  that  its  services 
shall  be  rendered  for  a  reasonable  charge,  so  there 
is,  upon  the  part  of  the  people,  an  implied  promise 
that  this  property  shall  be  allowed  to  make  such 
charges  as  will  yield  to  it  fair  compensation. 

The  form  of  this  investment  is  such  that  it  can- 
not be  withdrawn.  Private  capital  can  usually  be 
taken  out  of  private  enterprise.  The  property  can 
be  sold  or  removed  to  other  fields  of  activity.  Not 
so  the  railroad.  It  must  be  used  where  it  is  and  for 
that  purpose,  or  it  is  worthless.  Whatever  prevents 
it  in  that  form  from  earning  a  fair  return  virtually 
confiscates  the  property. 

It  may  be,  and  is  true,  that  vast  fortunes  have 
been  accumulated  by  improper  manipulations  of 
railroad  properties  and  railroad  securities;  but  the 


TRANSPORTATION 

men  who  have  accumulated  those  fortunes  for  the 
most  part  no  longer  own  the  securities.  The  owners 
of  our  railway  stocks  to-day  are  mainly  innocent 
purchasers  who  hold  them  for  value  paid.  To 
impair  the  value  of  these  stocks  would  not  punish 
the  persons  who  have  improperly  profited  by  these 
transactions  in  the  past.  Justice  requires  that  we 
deal  with  this  problem  mainly  as  it  is  and  that 
we  do  not  impose  upon  railway  capital  such  limita- 
tions as  will  prevent  it  from  making  a  suitable  return 
by  reason  of  what  has  already  happened. 

The  government  might  have  built  and  operated 
its  own  railways,  but  instead  of  doing  so  it  has 
invited  private  capital  to  discharge  for  it  this  public 
function,  upon  the  assurance  that  such  capital  shall 
be  allowed  to  exact  a  fair  compensation  for  the  ser- 
vice. Nothing  can  be  more  unjust  than  to  deny  to 
this  capital  that  right. 

Not  only  does  a  sense  of  justice  require  this; 
self-interest  also  dictates  it.  The  railroads  of  this 
country  must,  in  the  immediate  future,  be  very 
largely  extended  and  improved;  additional  facilities 
must  be  provided  to  meet  the  increased  demands 
which  will  be  made.  This  will  require  the  outlay 
of  vast  sums  of  capital;  and  this  capital  must 
come  mainly,  not  from  the  earnings  of  the  railroad, 
but  from  the  investing  public.  We  can  provide 
by  legislation  the  sort  of  cars  which  a  railroad 
shall  use  and  the  rates  which  it  shall  impose;  we 
cannot  by  legislation  force  one  single  dollar  of 


TRANSPORTATION 

private  capital  into  railroad  investment  against 
its  will. 

Capital  will  seek  investment  in  this  field  for 
exactly  the  same  reason  that  it  will  in  any  other; 
namely,  upon  the  expectation  of  making  a  profit  out 
of  the  investment.  It  is  not  necessary  that  the  re- 
turn should  be  large;  but  it  is  necessary  that  it 
should  be  certain;  that  the  people  who  put  their 
money  into  this  form  of  investment  shall  feel  con- 
fident of  fair  and  honest  treatment. 

A  want  of  adequate  railway  facilities  would  mean 
industrial  paralysis.  Unless  they  are  provided  when 
needed,  the  government  will  find  itself  confronted 
with  a  demand  from  all  sources  —  from  the  mer- 
chant, the  manufacturer,  the  farmer  —  which  will 
force  it  to  meet  in  some  way  the  necessitites  of  the 
occasion;  and  this  can  only  be  by  either  furnishing 
the  capital  or  providing  the  railroad  itself.  If  we 
are  ever  brought  face  to  face  with  the  proposition 
of  government  ownership,  it  will  not  be  by  the  im- 
position of  excessive  charges,  for  we  can  deal  with 
that  situation,  but  by  the  impossibility  of  obtaining 
adequate  facilities.  The  possibility  of  such  an 
emergency  is  by  no  means  fanciful.  We  were  upon 
the  brink  of  it  in  the  fall  of  1906  and  the  winter  of 
1907,  when  crops  were  rotting  upon  the  ground 
because  they  could  not  be  carried  to  market  and 
when  people  were  freezing  because  coal  could  not  be 
transported  to  keep  them  warm. 

This  phase  of  the  matter  is  too  little  considered. 


TRANSPORTATION 

If  this  government  hopes  to  continue  its  present 
system;  if  we  are  to  look  in  the  future  as  in  the  past 
to  private  capital  for  the  providing  of  our  railroad 
transportation,  it  is  fundamentally  necessary  that 
confidence  in  the  fair  treatment  of  that  capital  shall 
be  established. 

It  is  often  urged  that  the  proper  way  in  which  to 
produce  confidence  is  by  stopping  the  regulation 
of  railroads.  It  is  urged  that  their  attempted  regu- 
lation has  only  resulted  in  confusion  and  disaster 
and  that  it  never  ought  to  have  been  undertaken. 

This  is  nonsense.  Whoever  controls  the  highways 
of  a  nation  controls  that  nation.  Regulation  was 
inevitable,  and  without  it  a  state  of  anarchy  would 
have  resulted.  There  must  be  regulation,  and  that 
regulation  must  be  complete  and  effective;  but  it 
should  be  just  and  intelligent.  The  problem  is 
how  to  secure  the  right  kind  of  regulation.  The 
naming  of  a  railway  rate  or  a  railway  rule  which 
shall  be  followed  for  the  future  is  a  legislative  func- 
tion, but  none  the  less  it  cannot  properly  be  dis- 
charged by  the  legislature  itself.  In  all  its  essentials 
the  act  partakes  more  of  the  judicial  than  of  the 
legislative.  The  problem  presented  is  a  new  one, 
requiring  a  new  kind  of  machinery. 

The  only  feasible  way  seems  to  be  to  create  a 
tribunal  in  the  nature  possibly  of  the  present  com- 
missions; to  make  that  tribunal  as  able,  as  dis- 
passionate, as  honest,  as  is  possible,  and  to  leave 
with  it  the  solution  of  these  questions.  Any  such 


TRANSPORTATION 

tribunal  will  make  errors  on  both  sides;  but  in 
process  of  time  it  will  become,  so  to  speak,  educated 
to  its  duties.  Just  as  the  courts  of  England,  acting 
through  a  series  of  years,  evolved  our  common  law, 
so  in  time  there  will  grow  up  a  system  of  rules 
applicable  to  this  subject  which  will  be  reasonably 
just  to  both  parties. 

There  is  grave  probability  that  within  the  half 
century  the  United  States  must  consider  the  ques- 
tion of  taking  over  the  operation  of  its  railroads. 
No  other  complete  solution  of  many  questions  which 
present  themselves  can  be  suggested.  The  tendency 
everywhere  is  that  way.  Other  governments  are 
continually  moving  in  that  direction,  and  never  in 
the  other  direction. 

Such  an  undertaking  would,  however,  be  a  tre- 
mendous one.  It  is  not  certain  that  the  result 
would  be  unfortunate;  but  the  experiment  would 
be  hazardous.  For  one,  I  would  be  glad  to  see 
regulation  fairly  tried  before  ownership  is  resorted 
to.  To  this  end  there  is  necessary,  upon  the  part  of 
the  public,  intelligence  honestly  directed,  upon  the 
part  of  the  railway  honest  cooperation,  upon  both 
sides  patient  forbearance. 


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